From: "may-ling sie" <meyerj {AT} xtra.co.nz>
Sent: Thursday, May 16, 2002 12:19 PM
I can't say for sure that the story below is not known in the Netherlands,
but I
doubt that it is. I haven't sent it to anyone else, except the Netherlands
Embassy in Wellington who were very hostile towards me when I did. I felt
quite
threatened.
In New Zealand the emphasis has been on Fay Richwhite who were involved in
several of the assett privatisasion deals and who are back in the news at
the
moment. See:
Top Nats in cash wrangle
http://www.nzherald.co.nz/storydisplay.cfm?storyID=1942509&thesection=news&t
hesubsection=general
--
Last year I had to renew my passport. I arrived after closing time but to my
surprise the door was answered by a woman who said that she was an employee
of Huka Loge, a company owned by Alex van Heeren. I phoned the Embassy
immediately to let them know that this was going on. The man I talked to at
the Netherlands Embassy was extremely agressive and threatening. They know
all about this but don't seem to have any problems with Alex van Heeren as a
representative of the Crown.
The following is an article by Brian Gaynor which was published in the New
Zealand Herald last year.
http://www.nzherald.co.nz/storydisplay.cfm?thesection=business&thesubsection
=&amp;storyID=156380&amp;reportID=51005
Some background facts that might be useful:
* Alex van Heeren is the honorary consul for the Netherlands in
Auckland.
* Auckland is the business centre of New Zealand, the government is
in Wellington.
* Insider trading is not illegal in New Zealand, but it isn't
respectable and individuals caught doing in the share market have
faced civil action and have lost their jobs for doing it.
* The finance minister at the time was Ruth Richardson. Her own party
fired her because she was so unpopular. She quit politics and went
to Russia to give advice on state asset sales (really!).
* None of the people mentioned in this articles have contested Brian
Gaynor's summary of these events.
* Brian Gaynor is one of the most repected business writers in New
Zealand. The New Zealand Herald is the country's largest newspaper.
This is what passes as the middle of the mainstream around here.
Abstract
* NZ Rail was owned by the New Zealand government until 1993.
* Fay, Richwhite was the main financial adviser to NZ Rail between
1990 and 1993.
* In September 1993, NZ Rail was privatised and sold to Tranz Rail
for $328.3 million. Tranz Rail had six main shareholders including:
*Fay, Richwhite, a New Zealand-listed company, 31.8 per cent.
and
*Alex van Heeren, 9.1 per cent.
* In 1998, Alex van Heeren, the owner of Huka Lodge, sold 7.4
million shares at an average price of $5.99. This compared with his
original cost of 16c a share. Mr van Heeren's profit, which
exceeded $42 million, was particularly attractive because New
Zealand has no capital gains tax.
* The huge returns received by Tranz Rail's original investors has
had nothing to do with good governance as the group's operating
profit is now lower than its last two years under Government
ownership.
* Those profits are mainly due to Fay, Richwhite's intimate knowledge
of the group's financial structure and the new shareholders'
ability to take advantage of the Government's $1.2 billion debt
writeoff and $360 million equity injection in1990.
* Tranz Rail has recently announced the closing of its passenger
operations
Investment: Track record costly to public
21.10.2000
By BRIAN GAYNOR
Tranz Rail's colourful history took another turn last week when the company
announced it was closing its passenger operations. The decision is
particularly important for the Auckland area because the local authorities
are trying to buy the region's rail corridors for $65 million. These will
form the basis of a new multimillion-dollar transport system.
Fay, Richwhite, one of Tranz Rail's controlling shareholders, has never been
on the wrong end of a transaction with the public sector and the sale of the
corridors to the local authorities is not expected to break this trend.
Tranz Rail can be traced back to the original railway network established by
the Government in the late 1870s.
The network became hopelessly overstaffed and inefficient, and in 1982 the
Railways Department was reorganised into a wholly owned Government
organisation called New Zealand Railways Corporation.
In 1990, the company was restructured again and incorporated as a limited
liability company called New Zealand Rail. As part of this process the
Government wrote off $1.2
billion of debt and contributed $360 million of new equity. Fay, Richwhite
was the main financial adviser to NZ Rail between 1990 and 1993.
In September 1993, NZ Rail was privatised and sold to Tranz Rail for $328.3
million. Tranz Rail had six main shareholders:
*Fay, Richwhite, a New Zealand-listed company, 31.8 per cent.
*Wisconsin Central, a United States rail company, 27.3 per cent.
*Berkshire Fund, a US investment group, 27.3 per cent.
*Alex van Heeren, 9.1 per cent.
*Richwhite family interests, 4.5 per cent.
In an extremely clever move, Tranz Rail borrowed $220.9 million to buy NZ
Rail, and Tranz Rail's shareholders contributed just $107.4 million of
equity to the purchase price.
NZ Rail's strong balance sheet allowed the private-sector shareholders to
effectively extract $220.9 million of equity that the taxpayer had
contributed just three years earlier.
In 1995, Tranz Rail made a capital repayment of $100 million. As $90.6
million of this went to Tranz Rail's original shareholders it effectively
reduced their investment in
the group from $107.4 to $16.8 million.
This $16.8 million represents a net cost of only 16c a share for the
original Tranz Rail shareholders. In mid-1996, Tranz Rail issued 31 million
new shares - representing 25 per cent of the group - to the public at $6.19
each. A substantial proportion of new equity was used to repay the
borrowings associated with the $100 million capital repayment in 1995. The
shares were listed on the Stock Exchange on June 14, 1996 and were keenly
sought by investors. By the end of the year Tranz Rail's share price had
reached $8.60 and it peaked at $9 in mid-1997.
A number of the original shareholders took advantage of the high share price
to sell all or most of their holdings. Berkshire Fund sold 16.3 million
shares in November 1996 and March 1997 at an average price of more than $8
each.
In 1998, Alex van Heeren, the owner of Huka Lodge, sold 7.4 million shares
at an average price of $5.99. This compared with his original cost of 16c a
share.
Mr van Heeren's profit, which exceeded $42 million, was particularly
attractive because New Zealand has no capital gains tax.
In recent years Tranz Rail's operating performance has been fairly dismal.
Since 1995-96 there has been a huge increase in capital expenditure and
long-term debt.
Over the same period revenue has been relatively static and operating profit
has fallen from $111 to $71 million.
The group's share price has responded to the poor performance and it reached
an all-time low of $2.60 in 1998. At yesterday's closing price of $3.60, it
is still well below the public issue price of $6.19 a share.
The recent history of Tranz Rail contradicts the theory that success is
rewarded and failure is punished in the business world.
Francis Small, the group's managing director until May, has received large
pay increases in each of the past three years and he was paid $1.8 million,
including a retirement allowance, in the year to last June. Dr Small remains
a director even though the group has performed poorly in recent years under
his stewardship.
The huge returns received by Tranz Rail's original investors has had nothing
to do with good governance as the group's operating profit is now lower than
its last two years
under Government ownership. Those profits are mainly due to Fay, Richwhite's
intimate knowledge of the group's financial structure and the new
shareholders' ability to take advantage of the Government's $1.2 billion
debt writeoff and $360 million equity
injection in 1990.
But the poor operating performance of the group has finally stirred the
directors into action. Michael Beard has replaced Dr Small as managing
director and he told last week's annual meeting that Tranz Rail would be
substantially restructured.
The group will concentrate on freight. Its other businesses, including
passenger services, will be sold, leased or closed. Staff numbers will be
reduced from 4000 to just 600 as part of the process. A number of lines,
including the Napier to Gisborne route, may be permanently shut. This will
put enormous pressure on roads, particularly in regions where there is
expected to be a huge increase in logging activity over the next few
decades.
Tranz Rail's main shareholders, who were responsible for stripping out
$220.9 million of equity in 1993 and $100 million in 1995, are now
suggesting that the Government may wish to subsidise uneconomic lines if it
wants them kept open.
The obvious conclusion from last week's announcement is that Wisconsin
Central, Fay, Richwhite, Berkshire and Richwhite family interests who still
own 45 per cent of Tranz
Rail believe that they can maximise shareholder value by downsizing the
group to its profitable freight operations.
Last year, the Fay and Richwhite interests sold 6.2 million Tranz Rail
shares at an average price of $3.62 each and their original $34 million
investment is now worth
nearly $130 million, most of it unrealised. The big shareholders have
probably decided that they have too many shares to sell on the market and
the best way to realise value is through further capital repayments. In this
regard the country's taxpayers and Auckland's ratepayers are about to assist
them.
Tranz Rail is in the process of selling part of its long-term lease over the
railway lines in the greater Auckland region for $65 million plus an annual
fee of $2.25 million.
This will probably be funded by a combination of taxpayer and ratepayer
money.
The money will be a bonanza for Tranz Rail shareholders and will probably be
returned to them in the form of a capital repayment.
It is difficult to understand why the Auckland region is prepared to pay $65
million to part-lease the railway corridors when the whole of NZ Rail was
effectively bought
for $107.4 million in 1993 - or $16.8 million after the 1995 capital
repayment.
Who will run the Auckland system if Tranz Rail closes its passenger
services? If Tranz Rail sells the passenger activities, will the new owner
have any interest in running a commuter train service in Auckland?
The proposed $65 million purchase indicates that Auckland region councillors
have no better grasp of economic reality than the Wellington politicians
seven years ago.
*Disclosure of interest: none.
http://www.nzherald.co.nz/storydisplay.cfm?thesection=business&thesubsection
=&amp;storyID=156380&amp;reportID=51005
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